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Which of the following is true about the phillips curve

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Reference no: EM133198810

Assignment:

For the following multiple-choice questions, circle the best answer. You have the option of providing a justification to support your result.

1. Suppose the economy is at full employment and there is a sudden increase in the price of oil. This will shift the

(A) AD curve and Short Run Phillips curve right.
(B) SRAS curve and Short Run Phillips curve right.
(C) AD curve left and Short Run Phillips curve right.
(D) SRAS curve left and Short Run Phillips curve right.
(E) SRAS curve and Short Run Phillips curve left.

2. If inflationary expectations decrease, it will cause the

(A) Long Run Phillips curve to shift right.
(B) Short Run Phillips curve to shift left.
(C) Aggregate Demand curve to shift left.
(D) Aggregate Demand curve to shift right.
(E) Short Run Phillips curve to shift right.

3. An increase in the productivity of a nation's workforce would result in

(A) A leftward movement along the short run Phillips Curve.
(B) A rightward movement along the short run Phillips Curve.
(C) The long run Phillips Curve shifting left.
(D) The short run Phillips Curve shifting right.
(E) None of the above.

4. A positive supply shock would cause

(A) The Short Run Phillips curve to shift right.
(B) A movement down the Short Run Phillips curve.
(C) A movement up the Short Run Phillips curve.
(D) The Short Run Phillips curve to shift left.
(E) No change in the Short Run Phillips curve.

5. Suppose that the unemployment rate increases from 4 percent to 5 percent and the inflation rate increases from 2 percent to 3 percent. Which of the following best explains these trends?

(A) An increase in AD.
(B) An increase in SRAS.
(C) A decrease in AD.
(D) A decrease in AD and an increase in SRAS.
(E) A decrease in SRAS.

6. A decrease in consumer confidence would cause

(A) The short run Phillips Curve to shift right.
(B) A leftward movement along the short run Phillips Curve.
(C) The long run Phillips Curve to shift left.
(D) The short run Phillips Curve to shift left.
(E) A rightward movement along the short run Phillips Curve.

7. Which of the following is true about the Phillips Curve?

(A) The Long Run Phillips Curve shows the trade off between unemployment and inflation and the Short Run Phillips Curve does not.
(B) Change in expected inflation affect the Long Run Phillips Curve only.
(C) Negative supply shocks affect the Long Run Phillips Curve only.
(D) A change in aggregate demand does not shift the Long Run Phillips Curve.
(E) A change in aggregate demand does not cause a movement along the Short Run Phillips Curve.

8. Which of the following best explains how an economy could simultaneously experience high inflation and high unemployment?

(A) There is an increase in the number of women and teenagers in the labor force.
(B) There is a decrease in factor prices.
(C) There is a decrease in the required reserve ratio.
(D) The government increases spending without increasing taxes.
(E) There is an increase in expected inflation.

9. Which of the following would cause a movement along a country's short-run Phillips curve toward lower unemployment and higher inflation?

(A) An open market purchase of government securities.
(B) An increase in government spending.
(C) An increase in energy prices.
(D) An increase in business taxes.
(E) An increase in personal income taxes.

10. A decrease in aggregate demand will cause which of the following?

(A) The long run Phillips curve to shift right.
(B) The short run Phillips curve to shift right.
(C) A movement to the right along the short run Phillips curve.
(D) The short run Phillips curve to shift left.
(E) A movement to the left along the short run Phillips curve.

11. Which of the following is an example of an expansionary supply shock?

(A) Rapid increasing wages.
(B) Lower than expected agricultural harvests.
(C) Lower factor prices in major industries.
(D) Declining labor productivity.
(E) None of the above.

12. Which of the following could cause stagflation?

(A) The government increases spending without increasing taxes.
(B) An increase in the productivity of the nation's stock of capital.
(C) There is an increase in the number of teenagers entering the labor force.
(D) An increase in inflationary expectations.
(E) A permanent decrease in the business tax.

13. Which of the following would cause the Short Run Phillips Curve to shift left?

(A) The shutdown of factories and movement of production of goods abroad.
(B) An increase in interest rates.
(C) An across the board reduction of wages in the manufacturing sector.
(D) A tax increase of 50 cents per gallon for gasoline.
(E) The passage of legislation mandating a reduction in automobile pollution.

14. Cost-push inflation is represented by

(A) The long run Phillips Curve shifting left.
(B) The short run Phillips Curve shifting right.
(C) A leftward movement along the short run Phillips Curve.
(D) The short run Phillips Curve shifting left.
(E) A rightward movement along the short run Phillips Curve.

15. Suppose a country's central bank decreases the Discount Rate. This would cause

(A) The long run Phillips Curve to shift left.
(B) The short run Phillips Curve to shift right.
(C) A leftward movement along the short run Phillips Curve.
(D) A rightward movement along the short run Phillips Curve.
(E) The long run Phillips Curve to shift right.

16. Assume the United States economy is in long run equilibrium with an inflation rate of 6%, an unemployment rate of 5%, and a nominal interest rate of 8%.

(A) Using a correctly labeled graph with both the short run and long run Phillips Curves, and the relevant information above to show the current long run equilibrium as point A.

(B) Calculate the real interest rate at long run equilibrium.

(C) Assume the Federal Reserve decides to target an inflation rate of 3%. What open market operation should the Fed take?

(D) Using a correctly labeled graph of the money market, show and explain how the action you identified in (C) will affect the nominal interest rate.

(E) Provide a graphical representation and explanation showing how the interest rate change you identified in (D) will affect the country's Price Level and GDP.

(F) Assume the Federal Reserve action is successful. Redraw your graph in (A), and show the economy's new equilibrium as point B.

(G) Given your result in (F), do you think it was a good idea for the Federal Reserve to target a lower rate of inflation? Explain.

Reference no: EM133198810

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